Ecclesiastl.8fe Regulatory News (ELLA)

Financial headlines

The Group has continued to demonstrate resilience in challenging times, maintaining its financial strength over the interim period. Group profit before tax was £8.0m (H1 2011 restated to exclude discontinued operations: £16.8m). This was broadly in line with expectations, despite turmoil in the Eurozone and floods in the UK following the wettest June on record.

Gross written premiums in our general insurance business increased to £240.7m (H1 2011 restated: £235.2m), reflecting steady growth across our underwriting territories and a strengthened underwriting stance in Australia. Progress has continued in our targeted areas, including Property Investors, Charity and Education.

Single premiums from our life insurance business increased from £9.8m to £10.8m. Our broker business also continued to perform strongly with double digit top-line growth in the interim period.

Our on-going general insurance operations produced a £14.4m underwriting loss and a combined operating ratio (COR) of 109.9% (H1 2011 restated: £6.0m loss and COR of 104.0%). The first half results have been affected by flooding in the UK and Canada and an increase in liability claims experience across the UK and Ireland. Increased reinsurance costs in Australia have adversely impacted the results for this territory.

The life insurance business contributed a profit of £0.1m (H1 2011: £1.1m loss) to the Group's profit before tax following actions to restore profitability. Insurance broking activities contributed £1.2m profit (H1 2011: £1.0m profit).

Whilst we experienced month to month volatility, domestic stock markets ended marginally ahead of the year end position, and despite escalating uncertainty around certain European economies, investment operations contributed £22.3m to profit (H1 2011 restated: £24.3m).

The net loss attributable to discontinued operations was £5.7m (H1 2011 restated: £0.8m loss). This includes the cost of disposing of the New Zealand run-off operation, ACS (NZ) Limited, to the Canterbury Earthquake Church and Heritage Trust, an independent trust with similar objectives to that of our ultimate parent, detailed in notes 6 and 8 to the condensed set of financial statements.

As was the case in 2011, the level of charitable grant to Allchurches Trust Limited, the ultimate parent undertaking, will be determined in the second half. The grant recognised during the full year 2011 was £10.3m (£7.5m net of tax relief).

Outlook

The Group remains cautious over the short term outlook: the financial climate is still uncertain, particularly with the Eurozone debt crisis causing volatility on global stock exchanges, and the insurance market remaining highly competitive. However, through continuing to address the specific short term issues of liability performance in the United Kingdom and Ireland and reinsurance costs in Australia, together with growing successfully in core profitable markets, the Group remains confident about the medium to long term outlook.

Related party transactions

Related party transactions and changes to them since the last annual report are disclosed in note 9 to the condensed set of financial statements. The latest annual report is available from the registered office and at www.ecclesiastical.com/general/investorrelations/reportandaccounts.

Principal risks and uncertainties

The principal risks and uncertainties that could have a material impact on the Group's performance, such that actual results differ from expected and historical results, are detailed in note 1 to the condensed set of financial statements. The principal risks and uncertainties that were disclosed in the Risk Report and notes 3 and 4 to our latest annual report still apply. The disposal effected during the period has significantly reduced the Group's insurance reserving risk related to the New Zealand earthquakes, as well as the related credit risk on reinsurance recoverables. The Group's central operations segment includes the purchase of a higher level of reinsurance cover for 2012 to mitigate against global catastrophe events and protect financial strength.

The Group has reviewed its exposures to the Eurozone debt crisis, with no significant impact on the Group's interim financial position. The strong capital base of the Group allows it to take a long term view with its underlying investment strategy and it is therefore willing and able to cope with the effects of periods of volatility.

Going concern

The Group has considerable financial resources and, as a consequence, the directors believe the Group is well placed to manage its business risks successfully and continue in operational existence for the foreseeable future. Accordingly, the Group continues to adopt the going concern basis in preparing the half-yearly financial report.

There have been no material subsequent events to disclose in this report.

Michael Tripp

Group Chief Executive

We confirm that to the best of our knowledge:

(a)

the condensed set of financial statements has been prepared in accordance with IAS 34, "Interim Financial Reporting";

(b)

the interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

(c)

the interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related party transactions and changes therein).

By order of the Board,

Michael Tripp

Mark Hews

Group Chief Executive

Chief Financial Officer

22 August 2012

for the 6 months to 30 June 2012

Restated *

Restated *

Note

30.06.12

30.06.11

31.12.11

6 Months

6 Months

12 Months

£000

£000

£000

Revenue

Gross written premiums

 251,420

 244,925

 476,294

Outward reinsurance premiums

(78,348)

(80,907)

(165,727)

Net change in provision for unearned premium

(16,622)

(5,005)

 2,541

Net earned premiums

 156,450

 159,013

 313,108

Fees and commission income

 26,573

 25,082

 56,124

Net investment return

 25,315

 29,692

 21,266

Total revenue

 208,338

 213,787

 390,498

Expenses

Claims and change in insurance liabilities

(139,330)

(188,479)

(308,256)

Reinsurance recoveries

 24,320

 75,538

 91,443

Fees, commissions and other acquisition costs

(47,481)

(48,493)

(109,539)

Other operating and administrative expenses

(37,827)

(35,437)

(66,790)

Total operating expenses

(200,318)

(196,871)

(393,142)

Operating profit/(loss)

 8,020

 16,916

(2,644)

Finance costs

(61)

(130)

(198)

Profit/(loss) before tax

 7,959

 16,786

(2,842)

Tax expense

(965)

(3,333)

 4,443

Profit for the financial period from continuing operations

 6,994

 13,453

 1,601

Net loss attributable to discontinued operations

 6

(5,737)

(842)

(4,829)

Profit/(loss) for the financial period attributable to equity holders of the parent

 1,257

 12,611

(3,228)

* On 15 May 2012, the Group disposed of its wholly owned subsidiary, ACS (NZ) Limited. The prior half-year and full-year periods have been restated to present the results of the disposed business within discontinued operations.

for the 6 months to 30 June 2012

30.06.12

30.06.11

31.12.11

6 Months

6 Months

12 Months

£000

£000

£000

Net fair value gain on property

 2

-

 47

(Loss)/gain on currency translation differences

(2,277)

 1,283

(425)

Net (expense)/income recognised directly in equity

(2,275)

 1,283

(378)

Profit/(loss) for the period after tax

 1,257

 12,611

(3,228)

Total comprehensive income attributable to equity holders of the parent

(1,018)

 13,894

(3,606)

for the 6 months to 30 June 2012

Share

Share

Equalisation

Revaluation

Translation

Retained

capital

premium

reserve

reserve

reserve

earnings

Total

£000

£000

£000

£000

£000

£000

£000

2012

At 1 January

 120,477

 4,632

 22,719

 971

 28,195

 259,090

 436,084

Total comprehensive income attributable to equity holders of the parent

-

-

-

 2

(2,277)

 1,257

(1,018)

Dividends

-

-

-

-

-

(4,591)

(4,591)

Reserve transfers

-

-

 1,880

-

-

(1,880)

-

At 30 June

 120,477

 4,632

 24,599

 973

 25,918

 253,876

 430,475

2011

At 1 January

 120,477

 4,632

 18,679

 924

 28,620

 283,575

 456,907

Total comprehensive income attributable to equity holders of the parent

-

-

-

-

 1,283

 12,611

 13,894

Dividends

-

-

-

-

-

(4,591)

(4,591)

Reserve transfers

-

-

(1,012)

-

-

 1,012

-

At 30 June

 120,477

 4,632

 17,667

 924

 29,903

 292,607

 466,210

2011

At 1 January

 120,477

 4,632

 18,679

 924

 28,620

 283,575

 456,907

Total comprehensive income attributable to equity holders of the parent

-

-

-

 47

(425)

(3,228)

(3,606)

Dividends

-

-

-

-

-

(9,181)

(9,181)

Net charitable grant to ultimate parent

-

-

-

-

-

(7,534)

(7,534)

Group tax relief in excess of standard rate

-

-

-

-

-

(502)

(502)

Reserve transfers

-

-

 4,040

-

-

(4,040)

-

At 31 December

 120,477

 4,632

 22,719

 971

 28,195

 259,090

 436,084

The equalisation reserve is not distributable and must be kept in compliance with the insurance companies' reserves regulations. The revaluation reserve represents cumulative net fair value gains on owner occupied property. The translation reserve arises on consolidation of the Group's foreign operations.

at 30 June 2012

30.06.12

30.06.11

31.12.11

£000

£000

£000

Assets

Goodwill and other intangible assets

 24,920

 25,478

 25,335

Deferred acquisition costs

 34,168

 39,880

 35,788

Deferred tax assets

 6,529

 4,762

 5,454

Pension assets

 34,968

 31,222

 33,713

Property, plant and equipment

 8,585

 8,918

 9,033

Investment property

 29,454

 27,026

 27,473

Financial investments

 842,052

 887,391

 829,921

Reinsurers' share of contract liabilities

 163,529

 552,307

 541,050

Current tax recoverable

-

 2,621

 3,882

Other assets

 175,679

 153,409

 147,030

Cash and cash equivalents

 148,564

 116,117

 155,024

Total assets

 1,468,448

 1,849,131

 1,813,703

Equity

Share capital

 120,477

 120,477

 120,477

Share premium account

 4,632

 4,632

 4,632

Retained earnings and other reserves

 305,366

 341,101

 310,975

Total shareholders' equity

 430,475

 466,210

 436,084

Liabilities

Insurance contract liabilities

 912,102

 1,252,630

 1,249,625

Finance lease obligations

 1,736

 1,889

 1,886

Provisions for other liabilities

 7,744

 10,162

 8,717

Retirement benefit obligations

 13,001

 9,714

 12,760

Deferred tax liabilities

 35,191

 41,979

 35,877

Current tax liabilities

 2,921

 5,412

 1,396

Deferred income

 15,743

 19,690

 17,557

Other liabilities

 49,535

 41,445

 49,801

Total liabilities

 1,037,973

 1,382,921

 1,377,619

Total shareholders' equity and liabilities

 1,468,448

 1,849,131

 1,813,703

for the 6 months to 30 June 2012

Restated

Restated

30.06.12

30.06.11

31.12.11

6 Months

6 Months

12 Months

£000

£000

£000

Profit/(loss) before tax

 7,959

 16,786

(2,842)

Adjustments for:

Loss before tax on discontinued operations

(834)

(1,213)

(4,829)

Depreciation of property, plant and equipment

 974

 1,134

 2,302

Loss on disposal of property, plant and equipment

 50

 77

 85

Amortisation of intangible assets

 991

 1,057

 2,101

Loss on disposal of intangible assets

 14

-

-

Net fair value (gains)/losses on financial instruments and investment property

(2,555)

(8,698)

 18,496

Dividend and interest income

(21,737)

(19,014)

(37,948)

Finance and share issue expenses

 61

 130

 198

Changes in operating assets and liabilities:

Net (decrease)/increase in insurance contract liabilities

(4,883)

 268,137

 281,087

Net decrease/(increase) in reinsurers' share of contract liabilities

 50,419

(250,002)

(251,366)

Net decrease in deferred acquisition costs

 1,531

 1,793

 5,555

Net increase in other assets

(28,519)

(17,042)

(13,452)

Net decrease in operating liabilities

(655)

(8,030)

(3,149)

Net (decrease)/increase in other liabilities

(685)

(10)

 1,595

Cash generated/(used) by operations

 2,131

(14,895)

(2,167)

Dividends received

 5,732

 4,494

 8,327

Interest received

 14,613

 13,751

 28,715

Interest paid

(61)

(130)

(198)

Tax recovered/(paid)

 2,955

(3,183)

(4,724)

Net cash from operating activities

 25,370

 37

 29,953

Cash flows from investing activities

Purchases of property, plant and equipment

(499)

(401)

(1,458)

Proceeds from the sale of property, plant and equipment

-

 8

 8

Purchases of intangible assets

(595)

(607)

(1,518)

Disposal of business, net of cash transferred

(12,734)

-

-

Purchases of financial instruments and investment property

(101,719)

(251,186)

(365,815)

Sale of financial instruments and investment property

 87,985

 207,502

 349,223

Net cash used by investing activities

(27,562)

(44,684)

(19,560)

Cash flows from financing activities

Payment of finance lease liabilities

(251)

(295)

(519)

Payment of group tax relief in excess of standard rate

-

-

(909)

Dividends paid to company's shareholders

(4,591)

(4,591)

(9,181)

Donations paid to ultimate parent undertaking

-

-

(10,250)

Net cash used by financing activities

(4,842)

(4,886)

(20,859)

Net decrease in cash and cash equivalents

(7,034)

(49,533)

(10,466)

Cash and cash equivalents at the beginning of the period

 155,024

 164,805

 164,805

Exchange gains on cash and cash equivalents

 574

 845

 685

Cash and cash equivalents at the end of the period

 148,564

 116,117

 155,024

1. General information

The information for the year ended 31 December 2011 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditor reported on those accounts: its report was unqualified, did not draw attention to any matters by way of emphasis without qualifying the report, and did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

The half-yearly financial report was approved by the board on 22 August 2012. The Group results for the six month periods to 30 June 2012 and 30 June 2011 are unaudited, but have been reviewed by Deloitte LLP whose review report is at the end of this report.

The principal risks and uncertainties of the Group are in respect of insurance risk and financial risk. The principal risk that the Group faces under its insurance contracts is that the actual claims and benefit payments exceed the carrying amount of the insurance liabilities, which may occur if the frequency or severity of claims and benefits are greater than estimated. Insurance events are unpredictable and the actual level of claims and benefits may vary from year to year from the estimates established using statistical techniques. The Group's insurance underwriting strategy aims to diversify the type of insurance risks accepted in order to reduce the variability of the expected outcome. The Group also manages insurance risk through a comprehensive reinsurance programme and proactive claims handling.

The most important components of financial risk are interest rate risk, credit risk, currency risk and equity price risk. The Group is exposed to equity price risk because of financial investments held by the Group and stated at fair value through profit or loss. The Group mitigates this risk by holding a diversified portfolio across geographical regions and market sectors, and through the use of options and futures contracts from time to time which would limit losses in the event of a fall in equity markets. These principal risks and uncertainties, together with details of the financial risk management objectives and policies of the Group, are disclosed in the latest annual report.

The Group derives insurance premiums from a range of geographical locations and classes of business. Depending on the location and class of the risk, there may be a seasonal pattern to the incidence of claims. However, given the mix of business that the Group writes, overall the half-yearly results are not subject to any significant impact arising from the seasonality or cyclicality of operations.

The Group has considerable financial resources and, as a consequence, the directors believe the Group is well placed to manage its business risks successfully and continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the half-yearly financial report.

2. Accounting policies

Ecclesiastical Insurance Office plc (hereafter referred to as the "Company"), a public limited company incorporated and domiciled in England, together with its subsidiaries (collectively the "Group") operates principally as a provider of general insurance in addition to offering a range of financial services with offices in the UK, Ireland, Canada and Australia.

The annual financial statements are prepared in accordance with International Financial Reporting Standards as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with IAS 34, Interim Financial Reporting.

The same accounting policies and methods of computation are followed in the condensed set of financial statements as applied in the Group's latest audited annual financial statements. There have been no newly issued standards or changes to existing standards during the interim period which impact on the condensed set of financial statements.